IMF Highlights Need for Reforms to Diversify Cambodian Economy

AKP Phnom Penh, January 28, 2025 —

The International Monetary Fund (IMF) has completed its annual assessment of Cambodia's economy, forecasting growth to accelerate from an estimated 5.5 percent last year to 5.8 percent this year.

“However, risks to the outlook are tilted to the downside from both external factors and domestic vulnerabilities, including from policy changes by major trading partners, geoeconomic fragmentation, and continued weakness in the construction and real-estate sectors,” it said.

STRONG EXTERNAL DEMAND

Released in Washington on Monday, the assessment said recovery remained “uneven” with growth driven mainly by external demand – notably a strong rebound in garment exports and high growth in agricultural exports.

But “tourism has experienced a structural shift in its composition, resulting in a lagged recovery in tourism receipts,” the IMF said, adding that growth in non-tradable sectors remained weak.

SIGNS OF PRIVATE DEBT OVERHANG

Moreover, “credit growth has come to a near halt” after an expansion that lifted the credit-to-GDP ratio from 24 percent in 2010 to 135 percent in 2023.

The construction and real estate sectors are meanwhile "undergoing a correction, with rising non-performing loans and emerging signs of private-sector debt overhang.”

PROMOTING DIVERSIFICATION AND COMPETITIVENESS

In their executive board assessment, IMF directors “highlighted the importance of structural reforms to promote economic diversification and improve competitiveness.

“They encouraged the authorities’ efforts to enhance human capital, invest in infrastructure, strengthen the business environment, address climate vulnerabilities, and promote renewable energy to attract more diversified FDI (foreign direct investment).

"They also underscored the importance of strengthening governance and institutions, improving transparency, enhancing the AML-CFT (anti-money laundering and combating the finance of terrorism) framework, and addressing data limitations through capacity development.”

By Sao Da